<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-8198
------
HOUSEHOLD INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3121988
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2700 Sanders Road, Prospect Heights, Illinois 60070
- ------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 564-5000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
At July 31, 1994, there were 96,135,946 shares of registrant's common
stock outstanding.<PAGE>
<PAGE> 2
Part 1. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
Household International, Inc. and Subsidiaries
STATEMENTS OF INCOME
- --------------------
<TABLE>
<CAPTION>
All dollar amounts except per share data are stated in millions.
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income . . . . . . . . . . . . . . . . . . . . . . . . $1,268.0 $1,282.5 $651.9 $646.4
Interest income from noninsurance investment securities. . . . 60.9 68.0 29.2 36.1
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 551.6 598.4 294.2 285.9
-----------------------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . . . . 777.3 752.1 386.9 396.6
Provision for credit losses on owned receivables . . . . . . . 328.9 357.0 154.8 183.2
-----------------------------------------------
Net interest margin after provision for credit losses. . . . . 448.4 395.1 232.1 213.4
-----------------------------------------------
Securitization and servicing fee income. . . . . . . . . . . . 337.1 191.5 166.1 94.4
Insurance premiums and contract revenues . . . . . . . . . . . 160.0 137.4 79.4 66.3
Investment income. . . . . . . . . . . . . . . . . . . . . . . 259.4 273.9 120.9 135.6
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . 128.8 139.5 66.0 70.7
Other income . . . . . . . . . . . . . . . . . . . . . . . . . 46.6 63.2 18.7 30.6
-----------------------------------------------
Total other revenues . . . . . . . . . . . . . . . . . . . . . 931.9 805.5 451.1 397.6
-----------------------------------------------
Net interest margin after provision for credit losses
and other revenues . . . . . . . . . . . . . . . . . . . . . 1,380.3 1,200.6 683.2 611.0
-----------------------------------------------
Salaries and fringe benefits . . . . . . . . . . . . . . . . . 331.7 299.4 167.4 149.8
Other operating expenses . . . . . . . . . . . . . . . . . . . 545.0 442.7 261.9 226.2
Policyholders' benefits. . . . . . . . . . . . . . . . . . . . 259.2 265.9 129.1 133.3
-----------------------------------------------
Total costs and expenses . . . . . . . . . . . . . . . . . . . 1,135.9 1,008.0 558.4 509.3
-----------------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . . 244.4 192.6 124.8 101.7
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 82.3 62.4 40.3 32.1
-----------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 162.1 $ 130.2 $ 84.5 $ 69.6
===============================================
Earnings per common share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 162.1 $ 130.2 $ 84.5 $ 69.6
Preferred dividends. . . . . . . . . . . . . . . . . . . . . . (13.8) (14.3) (6.9) (7.2)
-----------------------------------------------
Earnings available to common shareholders. . . . . . . . . . . $ 148.3 $ 115.9 $ 77.6 $ 62.4
===============================================
Average common and common equivalent shares (1). . . . . . . . 97.1 92.6 97.1 96.0
===============================================
Fully diluted earnings per common share (1). . . . . . . . . . $ 1.53 $ 1.25 $ .80 $ .65
===============================================
Primary earnings per common share (1). . . . . . . . . . . . . $ 1.55 $ 1.29 $ .81 $ .67
===============================================
Dividends declared per common share (1). . . . . . . . . . . . $ .60 $ .58 $ .30 $ .29
===============================================
(1) 1993 amount has been restated to reflect a two-for-one stock split in the form of a 100 percent stock dividend,
effective October 15, 1993.
</TABLE>
See notes to condensed financial statements.<PAGE>
<PAGE> 3
Household International, Inc. and Subsidiaries
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
In millions.
- ----------------------------------------------------------------------------------------------------
June 30, December 31,
1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 352.3 $ 317.4
Investment securities (fair value of
$8,691.2 and $9,045.5) . . . . . . . . . . . . . . . . . . . . 8,635.6 8,795.1
Finance and banking receivables. . . . . . . . . . . . . . . . . 19,872.5 19,563.0
Liquidating commercial assets. . . . . . . . . . . . . . . . . . 1,363.5 1,555.7
Deferred insurance policy acquisition costs. . . . . . . . . . . 562.7 381.6
Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . 582.0 473.4
Properties and equipment . . . . . . . . . . . . . . . . . . . . 454.1 434.3
Assets acquired through foreclosure. . . . . . . . . . . . . . . 241.3 251.8
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,336.4 1,189.2
--------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $33,400.4 $32,961.5
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Debt:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,510.9 $ 7,516.1
Commercial paper, bank and other borrowings. . . . . . . . . . 5,448.5 5,642.1
Senior and senior subordinated debt (with original
maturities over one year). . . . . . . . . . . . . . . . . . 9,586.1 9,113.8
--------------------------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,545.5 22,272.0
Insurance policy and claim reserves. . . . . . . . . . . . . . . 6,429.1 6,064.2
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . 2,024.8 2,207.7
--------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 30,999.4 30,543.9
--------------------------
Convertible preferred stock subject to mandatory redemption. . . 3.9 19.3
--------------------------
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . 320.0 320.0
--------------------------
Common shareholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 114.7 113.3
Additional paid-in capital . . . . . . . . . . . . . . . . . . 353.6 337.3
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 2,266.7 2,176.3
Foreign currency translation adjustments . . . . . . . . . . . (137.0) (132.7)
Unrealized gain (loss) on investments, net . . . . . . . . . . (67.4) 40.5
Common stock in treasury . . . . . . . . . . . . . . . . . . . (453.5) (456.4)
--------------------------
Total common shareholders' equity. . . . . . . . . . . . . . . . 2,077.1 2,078.3
--------------------------
Total liabilities and shareholders' equity . . . . . . . . . . . $33,400.4 $32,961.5
==========================
</TABLE>
See notes to condensed financial statements.<PAGE>
<PAGE> 4
Household International, Inc. and Subsidiaries
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
In millions.
- ---------------------------------------------------------------------------------------------------
Six months ended June 30 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 162.1 $ 130.2
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit losses on owned receivables . . . . . . . . . . . 328.9 357.0
Insurance policy and claim reserves. . . . . . . . . . . . . . . . . . 138.8 141.1
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 120.5 109.8
Net realized (gains) losses from sales of assets . . . . . . . . . . . 37.7 (2.8)
Deferred insurance policy acquisition costs. . . . . . . . . . . . . . (46.0) (40.6)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55.8 78.1
--------------------------
Cash provided by operations. . . . . . . . . . . . . . . . . . . . . . . 797.8 772.8
--------------------------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,388.5) (1,615.7)
Matured. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501.5 476.3
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,611.4 660.4
Short-term investment securities, net change . . . . . . . . . . . . . . 79.9 (85.1)
Receivables, excluding bankcard:
Originated or purchased. . . . . . . . . . . . . . . . . . . . . . . . (5,383.3) (4,909.4)
Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,727.4 3,582.1
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,064.1 1,300.7
Bankcard receivables:
Originated or collected, net . . . . . . . . . . . . . . . . . . . . . (6,743.4) (2,787.0)
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (519.0) -
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,015.9 1,584.8
Acquisition of banking organizations:
Deposits and other liabilities assumed, net. . . . . . . . . . . . . . - 203.1
Acquisition of credit card relationships . . . . . . . . . . . . . . . . (138.1) -
Properties and equipment purchased . . . . . . . . . . . . . . . . . . . (61.1) (42.8)
Properties and equipment sold. . . . . . . . . . . . . . . . . . . . . . 2.3 5.0
--------------------------
Cash decrease from investments in operations . . . . . . . . . . . . . . (1,230.9) (1,627.6)
--------------------------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt, net change. . . . . . . . . . . . . . . . . . . . . . . (316.5) 812.4
Time certificates accepted . . . . . . . . . . . . . . . . . . . . . . . 1,708.4 1,057.6
Time certificates paid . . . . . . . . . . . . . . . . . . . . . . . . . (1,590.0) (1,648.3)
Senior and senior subordinated debt issued . . . . . . . . . . . . . . . 2,011.7 1,595.9
Senior and senior subordinated debt retired. . . . . . . . . . . . . . . (1,514.7) (1,363.2)
Policyholders' benefits paid . . . . . . . . . . . . . . . . . . . . . . (249.1) (186.1)
Cash received from policyholders . . . . . . . . . . . . . . . . . . . . 472.7 418.6
Shareholders' dividends. . . . . . . . . . . . . . . . . . . . . . . . . (71.7) (69.7)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . 3.8 289.8
--------------------------
Cash increase from financing and capital transactions. . . . . . . . . . 454.6 907.0
--------------------------
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . 13.4 (9.7)
--------------------------
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.9 42.5
Cash at January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . 317.4 255.8
--------------------------
Cash at June 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 352.3 $ 298.3
==========================
Supplemental cash flow information:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 568.8 $ 615.5
==========================
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120.4 $ 51.4
==========================
</TABLE>
See notes to condensed financial statements.<PAGE>
<PAGE> 5
Household International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
BUSINESS SEGMENT DATA
- ---------------------
In millions.
- --------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
- --------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $1,883.5 $1,776.6 $ 960.9 $ 892.1
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 321.7 324.3 150.2 159.3
-------------------------------------------
Core Business. . . . . . . . . . . . . . . . . . . . . . . . . . 2,205.2 2,100.9 1,111.1 1,051.4
Liquidating Commercial Lines . . . . . . . . . . . . . . . . . . 55.6 55.1 21.1 28.7
-------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,260.8 $2,156.0 $1,132.2 $1,080.1
===========================================
NET INCOME
- ----------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $ 153.5 $ 133.4 $ 80.2 $ 74.7
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 22.3 21.5 10.6 9.8
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.2) (16.5) (3.8) (10.9)
-------------------------------------------
Core Business. . . . . . . . . . . . . . . . . . . . . . . . . . 167.6 138.4 87.0 73.6
Liquidating Commercial Lines . . . . . . . . . . . . . . . . . . (5.5) (8.2) (2.5) (4.0)
-------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 162.1 $ 130.2 $ 84.5 $ 69.6
===========================================
Return on average owned assets - Core Business (1) . . . . . . . 1.06% .90% 1.08% .97%
===========================================
Return on average owned assets - Total (1) . . . . . . . . . . . .98% .80% 1.01% .87%
===========================================
Return on average common shareholders' equity - Core Business (1) 19.32% 18.36% 20.14% 18.25%
===========================================
Return on average common shareholders' equity - Total (1). . . . 14.16% 12.96% 14.96% 13.01%
===========================================
(1) Annualized
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
June 30, December 31,
Assets 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . . . . $24,716.4 $24,362.5
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . . . . 7,228.2 6,959.0
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.3 84.3
----------------------------------
Core Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,036.9 31,405.8
Liquidating Commercial Lines . . . . . . . . . . . . . . . . . . . . . 1,363.5 1,555.7
----------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,400.4 $32,961.5
==================================
- ---------------------------------------------------------------------------------------------------------------
June 30, December 31,
Receivables owned 1994 1993
- ---------------------------------------------------------------------------------------------------------------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . . . . $19,645.9 $19,340.5
Liquidating Commercial Lines . . . . . . . . . . . . . . . . . . . . . 1,002.0 1,189.9
----------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,647.9 $20,530.4
==================================
- ---------------------------------------------------------------------------------------------------------------
June 30, December 31,
Receivables managed 1994 1993
- ---------------------------------------------------------------------------------------------------------------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . . . . $29,954.9 $29,168.3
Liquidating Commercial Lines . . . . . . . . . . . . . . . . . . . . . 1,002.0 1,189.9
----------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,956.9 $30,358.2
==================================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 6
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting policies used in preparation of the quarterly condensed
financial statements are consistent with accounting policies
described in the notes to financial statements contained in
Household International, Inc.'s (the "company") Annual Report on
Form 10-K for its fiscal year ended December 31, 1993. The
information furnished herein reflects all adjustments which are, in
the opinion of management, necessary for a fair statement of results
for the interim periods. All such adjustments are of a normal
recurring nature. Certain prior period amounts have been
reclassified to conform with the current period's presentation.
2. INVESTMENT SECURITIES
---------------------
<TABLE>
<CAPTION>
Investment securities consisted of the following:
-----------------------------------------------------------------------------------------------------------
In millions. June 30, 1994 December 31, 1993
-----------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRADING INVESTMENTS
Government securities and other . . . . . . . . . . . . . . $ 73.4 $ 73.4 $ 108.8 $ 108.8
---------------------------------------------
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities:
Common stocks . . . . . . . . . . . . . . . . . . . . . . 33.4 33.4 18.5 18.5
Preferred stocks. . . . . . . . . . . . . . . . . . . . . 57.2 57.2 66.3 66.3
Corporate securities. . . . . . . . . . . . . . . . . . . . 2,229.7 2,229.7 2,047.1 2,047.1
Government securities . . . . . . . . . . . . . . . . . . . 321.1 321.1 536.3 536.3
Mortgage-backed securities. . . . . . . . . . . . . . . . . 1,825.9 1,825.9 1,983.9 1,983.9
Commercial paper. . . . . . . . . . . . . . . . . . . . . . 62.4 62.4 52.6 52.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 219.9 219.9 295.2 295.2
---------------------------------------------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . 4,749.6 4,749.6 4,999.9 4,999.9
---------------------------------------------
HELD-TO-MATURITY INVESTMENTS
Corporate securities. . . . . . . . . . . . . . . . . . . . 1,835.8 1,876.6 1,852.3 2,049.4
Government securities . . . . . . . . . . . . . . . . . . . 43.2 43.1 34.5 36.7
Mortgage-backed securities. . . . . . . . . . . . . . . . . 1,004.2 1,014.8 882.1 928.1
Mortgage loans on real estate . . . . . . . . . . . . . . . 168.5 172.0 222.4 226.0
Policy loans. . . . . . . . . . . . . . . . . . . . . . . . 85.7 85.7 81.6 81.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 556.5 557.3 494.6 496.1
---------------------------------------------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . 3,693.9 3,749.5 3,567.5 3,817.9
---------------------------------------------
Accrued investment income . . . . . . . . . . . . . . . . . 118.7 118.7 118.9 118.9
---------------------------------------------
Total investment securities . . . . . . . . . . . . . . . . $8,635.6 $8,691.2 $8,795.1 $9,045.5
=============================================
/TABLE
<PAGE>
<PAGE> 7
3. FINANCE AND BANKING RECEIVABLES
-------------------------------
<TABLE>
<CAPTION>
Finance and banking receivables consisted of the following:
-------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1994 1993
-------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage. . . . . . . . . . . . . . . . . . . . . . . $ 3,164.6 $ 3,534.1
Home equity . . . . . . . . . . . . . . . . . . . . . . . . 2,899.8 2,850.9
Other secured . . . . . . . . . . . . . . . . . . . . . . . 842.3 875.4
Bankcard. . . . . . . . . . . . . . . . . . . . . . . . . . 4,530.9 4,356.9
Merchant participation. . . . . . . . . . . . . . . . . . . 2,845.7 2,636.5
Other unsecured . . . . . . . . . . . . . . . . . . . . . . 4,557.8 4,320.8
Equipment financing and other . . . . . . . . . . . . . . . 804.8 765.9
--------------------------------
Receivables owned . . . . . . . . . . . . . . . . . . . . . 19,645.9 19,340.5
Accrued finance charges . . . . . . . . . . . . . . . . . . 281.1 251.8
Credit loss reserve for owned receivables . . . . . . . . . (423.2) (424.0)
Unearned credit insurance premiums and claims reserves. . . (121.6) (117.5)
Amounts due and deferred from receivables sales . . . . . . 730.7 735.0
Reserve for receivables serviced with limited recourse. . . (240.4) (222.8)
--------------------------------
Total receivables owned, net. . . . . . . . . . . . . . . . 19,872.5 19,563.0
Receivables serviced with limited recourse. . . . . . . . . 10,309.0 9,827.8
Receivables serviced with no recourse . . . . . . . . . . . 17,239.4 15,229.4
--------------------------------
Total receivables owned or serviced, net. . . . . . . . . . $47,420.9 $44,620.2
================================
The outstanding balance of receivables serviced with limited recourse consisted of the following:
-------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1994 1993
-------------------------------------------------------------------------------------------------
Home equity . . . . . . . . . . . . . . . . . . . . . . . . $ 4,900.3 $ 5,029.5
Bankcard. . . . . . . . . . . . . . . . . . . . . . . . . . 5,195.3 4,485.7
Merchant participation. . . . . . . . . . . . . . . . . . . 213.4 312.6
--------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,309.0 $ 9,827.8
================================
The combination of receivables owned and receivables serviced with limited recourse, which the company
considers its managed portfolio, is shown below:
-------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1994 1993
-------------------------------------------------------------------------------------------------
First mortgage. . . . . . . . . . . . . . . . . . . . . . . $ 3,164.6 $ 3,534.1
Home equity . . . . . . . . . . . . . . . . . . . . . . . . 7,800.1 7,880.4
Other secured . . . . . . . . . . . . . . . . . . . . . . . 842.3 875.4
Bankcard. . . . . . . . . . . . . . . . . . . . . . . . . . 9,726.2 8,842.6
Merchant participation. . . . . . . . . . . . . . . . . . . 3,059.1 2,949.1
Other unsecured . . . . . . . . . . . . . . . . . . . . . . 4,557.8 4,320.8
Equipment financing and other . . . . . . . . . . . . . . . 804.8 765.9
--------------------------------
Receivables managed . . . . . . . . . . . . . . . . . . . . $29,954.9 $29,168.3
================================
The outstanding balance of receivables serviced with no recourse consisted of the following:
-------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1994 1993
-------------------------------------------------------------------------------------------------
First mortgage. . . . . . . . . . . . . . . . . . . . . . . $16,266.4 $13,917.5
Other unsecured . . . . . . . . . . . . . . . . . . . . . . 973.0 1,311.9
--------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,239.4 $15,229.4
================================
</TABLE>
The amount due and deferred from receivables sales of $730.7 million
at June 30, 1994 included unamortized excess servicing assets and
funds established pursuant to the recourse provisions and holdback
reserves for certain sales totaling $698.6 million. The amount due<PAGE>
<PAGE> 8
and deferred also included customer payments not yet remitted by the
securitization trustee to the company. In addition, the company has
made guarantees relating to certain securitizations of $281.3
million plus unpaid interest and has subordinated interests in
certain transactions, which are recorded as receivables, for $133.0
million at June 30, 1994. The company maintains credit loss
reserves pursuant to the recourse provisions for receivables
serviced with limited recourse which are based on estimated probable
losses under such provisions. These reserves totaled $240.4 million
at June 30, 1994 and represent the company's best estimate of
probable losses on receivables serviced with limited recourse.
See Note 5, "Credit Loss Reserves" for an analysis of credit loss
reserves for receivables. See "Management's Discussion and
Analysis" on pages 18 through 20 for additional information related
to the credit quality of Finance and Banking receivables.
4. LIQUIDATING COMMERCIAL ASSETS
-----------------------------
<TABLE>
<CAPTION>
Liquidating commercial assets consisted of the following:
-----------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables
Commercial real estate. . . . . . . . . . . . . . . . . . $ 260.5 $ 297.1
Highly leveraged acquisition finance and other. . . . . . 741.5 892.8
-----------------------------
Receivables owned . . . . . . . . . . . . . . . . . . . . . 1,002.0 1,189.9
Accrued finance charges . . . . . . . . . . . . . . . . . . 10.8 9.2
Reserve for credit losses . . . . . . . . . . . . . . . . . (165.0) (172.9)
-----------------------------
Total receivables owned, net. . . . . . . . . . . . . . . . 847.8 1,026.2
Real estate owned . . . . . . . . . . . . . . . . . . . . . 244.2 256.6
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 271.5 272.9
-----------------------------
Total liquidating commercial assets . . . . . . . . . . . . $1,363.5 $1,555.7
=============================
</TABLE>
See Note 5, "Credit Loss Reserves" for an analysis of credit loss
reserves for receivables. See "Management's Discussion and
Analysis" on pages 22 and 23 for additional information related to
the credit quality of Liquidating Commercial Assets.
<PAGE>
<PAGE> 9
5. CREDIT LOSS RESERVES
--------------------
<TABLE>
<CAPTION>
An analysis of credit loss reserves for the six months ended June 30 is as follows:
------------------------------------------------------------------------------------------------
In millions. 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit loss reserves for owned receivables at January 1 . . . . . . . . $621.9 $564.1
----------------------
Provision for credit losses - owned receivables:
Finance and Banking . . . . . . . . . . . . . . . . . . . . . . . . . 296.8 318.9
Liquidating Commercial Lines. . . . . . . . . . . . . . . . . . . . . 32.1 28.1
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10.0
----------------------
Total provision for credit losses - owned receivables . . . . . . . . . 328.9 357.0
----------------------
Owned receivables charged off:
Finance and Banking . . . . . . . . . . . . . . . . . . . . . . . . . (351.2) (332.4)
Liquidating Commercial Lines. . . . . . . . . . . . . . . . . . . . . (40.7) (43.1)
----------------------
Total owned receivables charged off . . . . . . . . . . . . . . . . . . (391.9) (375.5)
----------------------
Recoveries on owned receivables:
Finance and Banking . . . . . . . . . . . . . . . . . . . . . . . . . 55.0 48.3
Liquidating Commercial Lines. . . . . . . . . . . . . . . . . . . . . .7 .6
----------------------
Total recoveries on owned receivables . . . . . . . . . . . . . . . . . 55.7 48.9
----------------------
Credit loss reserves on receivables purchased, net. . . . . . . . . . . .4 1.5
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.8) (4.2)
----------------------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT JUNE 30 . . . . . . 613.2 591.8
----------------------
Credit loss reserves for receivables serviced with
limited recourse at January 1 . . . . . . . . . . . . . . . . . . . . 222.8 160.7
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 134.1 114.7
Chargeoffs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (119.1) (98.0)
Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 2.6
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.1) 2.5
----------------------
TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH
LIMITED RECOURSE AT JUNE 30 . . . . . . . . . . . . . . . . . . . . . 240.4 182.5
----------------------
TOTAL CREDIT LOSS RESERVES AT JUNE 30 . . . . . . . . . . . . . . . . . $853.6 $774.3
======================
Total credit loss reserves for owned receivables at June 30:
Finance and Banking . . . . . . . . . . . . . . . . . . . . . . . . . $423.2 $377.9
Liquidating Commercial Lines. . . . . . . . . . . . . . . . . . . . . 165.0 188.9
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.0 25.0
----------------------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT JUNE 30 . . . . . . $613.2 $591.8
======================
Total credit loss reserves for managed receivables at June 30:
Finance and Banking . . . . . . . . . . . . . . . . . . . . . . . . . $663.6 $560.4
Liquidating Commercial Lines. . . . . . . . . . . . . . . . . . . . . 165.0 188.9
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.0 25.0
----------------------
TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT JUNE 30 . . . . . $853.6 $774.3
======================
/TABLE
<PAGE>
<PAGE> 10
6. INCOME TAXES
------------
Effective tax rates for the six months ended June 30, 1994 and 1993
of 33.7 and 32.4 percent, respectively, differ from the statutory
federal income tax rate for the respective periods primarily because
of the effects of (a) foreign loss carryforwards, (b) amortization
of intangible assets, (c) state and local income taxes, (d)
dividends received deduction applicable to term preferred stocks,
(e) nondeductible dividends on preferred stock of subsidiaries, (f)
reduction of noncurrent tax requirements and (g) leveraged lease tax
benefits.
In the third quarter of 1993, new Federal tax legislation was
enacted which resulted in the statutory income tax rate being
increased from 34 percent to 35 percent retroactive to January 1,
1993. The effect of the new tax legislation is not reflected in the
effective tax rate for the six months ended June 30, 1993 as the
increase in income tax expense was recorded as a year-to-date
adjustment at September 30, 1993.
7. EARNINGS PER COMMON SHARE
-------------------------
<TABLE>
<CAPTION>
Computations of earnings per common share for the six months ended June 30 were as follows:
----------------------------------------------------------------------------------------------------------
1994 1993
------------------ ------------------
Fully Fully
In millions, except per share data. Primary Diluted Primary Diluted
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $162.1 $162.1 $130.2 $130.2
Preferred dividends . . . . . . . . . . . . . . . . . . . (14.5) (13.8) (16.0) (14.3)
-------------------------------------------
Net income available to common shareholders . . . . . . . . $147.6 $148.3 $114.2 $115.9
===========================================
Average shares (1):
Common. . . . . . . . . . . . . . . . . . . . . . . . . . 94.7 94.7 88.4 88.4
Common equivalents. . . . . . . . . . . . . . . . . . . . .6 2.4 .4 4.2
-------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.3 97.1 88.8 92.6
===========================================
Earnings per common share (1) . . . . . . . . . . . . . . . $ 1.55 $ 1.53 $ 1.29 $ 1.25
===========================================
(1) 1993 amounts have been restated to reflect the two-for-one stock split in the form of a 100 percent stock
dividend, effective October 15, 1993.
</TABLE>
Common share equivalents assume exercise of stock options, if
dilutive. Fully diluted earnings per share computations also assume
conversion of dilutive convertible preferred stock into common
equivalents. Preferred stock is considered dilutive if its dividend
rate per common share assuming conversion is less than primary
earnings per common share.
8. LEASES AND OTHER SIMILAR ARRANGEMENTS
-------------------------------------
In the fourth quarter of 1991, the company purchased credit card
receivables of approximately $1 billion from CoreStates Financial
Corporation. In connection with that purchase, an unaffiliated
third party acquired the rights to the account relationships
associated with the receivables and entered into an agreement to
license these rights to the company. In the second quarter of 1994,
the company terminated the license agreement and acquired these
account relationships resulting in an increase of approximately $140
million in acquired intangibles.
9. OTHER MATTERS
-------------
In June 1994, the company entered into an agreement with an
unaffiliated institution to assume certain liabilities, including
approximately $1.3 billion in customer deposits, and purchase 26
consumer bank branch facilities located in Illinois. The
transaction is expected to be completed in the Fall of 1994.<PAGE>
<PAGE> 11
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Consolidated Results of Operations
----------------------------------
Net income for the second quarter and first six months of 1994 was
$84.5 and $162.1 million, up 21 percent from $69.6 million and 25
percent from $130.2 million in 1993. The improvements in
consolidated net income for both periods primarily were due to
increased earnings in the Finance and Banking segment and lower
corporate expenses. Earnings in the Individual Life Insurance
segment also improved for both the second quarter and first six
months of 1994 compared to the prior year. In addition, net income
for both periods benefited from reduced losses in the Liquidating
Commercial Lines segment ("LCL"). Fully diluted earnings per share
were $.80 per share in the second quarter and $1.53 per share for
the first six months of 1994, up from $.65 per share and $1.25 per
share in the same periods in 1993.
During the second quarter and first six months of 1994, the
company's operations, financial position and profitability were
affected by the following:
- The domestic consumer finance, private-label credit card and
bankcard businesses increased earnings in both the second quarter
and first six months of 1994 over the year-ago periods. Domestic
consumer finance earnings increased primarily due to higher net
interest margin, increased servicing fee income and lower credit
costs. In the third quarter of 1993, the company began servicing
without recourse an unsecured consumer loan portfolio which
totaled approximately $1.0 billion at quarter end. Private-label
credit card earnings increased primarily due to growth in the
managed portfolio. The domestic bankcard business exhibited
continued growth primarily as a result of the company's
association with the General Motors credit card ("GM Card")
program. GM Card receivable growth generated higher net interest
margins and substantial fee income, offset somewhat by higher
operating expenses related to servicing and increased provision
for credit losses. Mortgage banking earnings in the second
quarter and first six months of 1994 were down from the year-ago
periods primarily due to a lower owned portfolio and narrower
spreads. There were no write-downs of capitalized servicing rights
in the 1994 second quarter and 1994 year-to-date write-downs were
lower than the 1993 six month period.
- Collectively, the foreign businesses were profitable in both the
second quarter and first six months of 1994 compared to breakeven
results in the prior year quarter and a loss in the prior year six
month period. The United Kingdom operation earned $5.2 million in
the second quarter, up from $2.0 million in 1993. For the first
six months of 1994, the United Kingdom earned $9.9 million
compared to a loss of $1.2 million in the prior year. The year-
over-year improvement in earnings was due largely to portfolio
growth and lower credit costs. Portfolio growth benefited from
the launch of the GM Card from Vauxhall in the United Kingdom in
January 1994. The Canadian operation reported a loss in the
second quarter and for the first six months of 1994 which was
comparable to the prior year periods. The Australian operation
remained profitable.
- Consumer two-months-and-over contractual delinquency
("delinquency") as a percent of managed consumer receivables was
3.32 percent, down from 3.61 percent at March 31, 1994 and 3.93
percent at June 30, 1993. Total delinquent receivables fell $44.8
million during the second quarter. The total consumer managed
chargeoff ratio decreased compared to the first quarter but was
slightly higher than the year-ago quarter, due to the maturation
of the GM Card portfolio.
- Credit loss reserves as a percent of Finance and Banking managed
receivables was 2.22 percent at June 30, 1994, down slightly from
2.26 percent at March 31, 1994 but up from 2.03 percent at June
30, 1993. Consumer credit loss reserves as a percent of managed
delinquency was 66.8 percent at June 30, 1994, up from 62.7
percent at March 31, 1994 and 52.0 percent at June 30, 1993.
Reserves for LCL receivables were essentially unchanged during the
quarter and for the first six months of the year despite a $187.9
million decrease in receivables since December 31, 1993, including<PAGE>
<PAGE> 12
$40.0 million in net chargeoffs. Credit loss reserves at June 30,
1994 as a percent of both LCL receivables and nonperforming loans
increased over December 31, 1993 and June 30, 1993 levels.
- Managed consumer receivables (owned receivables plus those
serviced with limited recourse) increased 4 percent during the
second quarter. The majority of the domestic growth occurred in
the unsecured products, primarily bankcards which grew 7 percent
in the quarter and private-label credit cards which grew 4
percent. First mortgage receivables were essentially flat
compared to the previous quarter. Lack of growth in the first
mortgage receivable portfolio is the result of the impact of the
rising interest rate environment which has significantly decreased
the demand for refinancings, and the company's desire to maintain
its pricing discipline on products it chooses to keep in
portfolio. The foreign consumer portfolio grew 9 percent during
the quarter primarily due to the GM Card from Vauxhall in the
United Kingdom.
Managed consumer receivables were up 9 percent over the prior year
period. This increase was somewhat offset by high levels of
prepayment activity in the first mortgage and home equity
portfolios, which began to stabilize in the second quarter due to
the higher interest rate environment. Excluding the first
mortgage portfolio, managed domestic consumer receivables were up
15 percent over the prior year. Demand for new loans, in
particular credit cards and unsecured loans, remained strong as
volume increased 41 percent during the first six months compared
to the same year-ago period. The foreign consumer portfolio was
up 10 percent over the prior year period primarily due to the GM
Card from Vauxhall in the United Kingdom.
- Net interest margin on a managed basis as a percent of average
managed interest-earning assets was 6.94 percent in the second
quarter compared to 7.27 percent in the previous quarter and 7.33
percent in the year-ago quarter. The decline in the second
quarter was primarily due to increased interest costs on variable
rate liabilities, which repriced more quickly than the company's
variable rate receivables in the rising interest rate environment.
The impact on margin was consistent with the company's
expectations given the interest rate environment and the company's
asset/liability management strategy.
- Year-over-year growth in managed basis fee income outpaced growth
in the managed consumer receivables portfolio primarily due to the
shift in product mix towards credit card receivables, specifically
the GM Card. Increased interchange fee income primarily was due
to an increase in the number of credit cards issued and greater
transaction volume, reflected in higher receivable volumes for the
company's domestic bankcard business.
The ratio of common and preferred shareholders' equity (including
convertible preferred stock) to total assets was 7.19 percent
compared to 7.33 percent at December 31, 1993. The ratios were
affected by the adoption of Statement of Financial Accounting
Standards No. 115 ("FAS No. 115") which requires that unrealized
gains or losses in certain debt and equity securities be recorded as
an adjustment to shareholders' equity. The rise in interest rates
from December 31, 1993 to June 30, 1994 resulted in a net unrealized
loss of $67.4 million in the company's available-for-sale investment
portfolio and a corresponding reduction in shareholders' equity.
While FAS No. 115 provides for the adjustment of certain debt and
equity securities to fair value, it does not allow for a
corresponding adjustment for a change in related liabilities.
Therefore, the unrealized loss does not reflect the change in the
economic value of shareholders' equity due to higher interest rates.
The company believes that the change in fair value of liabilities
would offset a significant amount of the reduction in the fair
value of its investment portfolio. Excluding the effect of the
FAS No. 115 component of shareholders' equity, the ratio of common
and preferred shareholders' equity to total assets was 7.39 at
June 30, 1994, up from 7.21 percent at December 31, 1993.
<PAGE>
<PAGE> 13
Consolidated Credit Loss Reserves
---------------------------------
The company's credit portfolios and credit management policies have
historically been divided into two distinct components - consumer
and commercial. For consumer products, credit policies require
effective portfolio management focusing on product type and specific
portfolio risk factors. The consumer credit portfolio is
diversified by product and geographic location. The commercial
credit portfolio is monitored by individual transaction as well as
being evaluated by overall risk factors. See Note 3, "Finance and
Banking Receivables" and Note 4, "Liquidating Commercial Assets" in
the accompanying financial statements for receivables by product
type.
Total managed credit loss reserves, which include reserves for
recourse obligations for receivables sold, were as follows (in
millions):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
June 30, March 31, December 31, June 30,
1994 1994 1993 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance and Banking:
Owned . . . . . . . . . . . . . . . . $423.2 $423.2 $424.0 $377.9
Serviced with limited recourse. . . . 240.4 228.4 222.8 182.5
-----------------------------------------------
Managed . . . . . . . . . . . . . . . 663.6 651.6 646.8 560.4
Liquidating Commercial Lines. . . . . . 165.0 170.8 172.9 188.9
Corporate . . . . . . . . . . . . . . . 25.0 25.0 25.0 25.0
-----------------------------------------------
Total . . . . . . . . . . . . . . . . . $853.6 $847.4 $844.7 $774.3
===============================================
</TABLE>
Total owned and managed credit loss reserves as a percent of
receivables were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
June 30, March 31, December 31, June 30,
1994 1994 1993 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned:
Finance and Banking . . . . . . . . . 2.15% 2.22% 2.19% 1.96%
Liquidating Commercial Lines. . . . . 16.47 15.45 14.53 13.06
----------------------------------------------
Total owned (1) . . . . . . . . . . . . 2.97% 3.07% 3.03% 2.85%
==============================================
Managed:
Finance and Banking . . . . . . . . . 2.22% 2.26% 2.22% 2.03%
Liquidating Commercial Lines. . . . . 16.47 15.45 14.53 13.06
----------------------------------------------
Total managed (1) . . . . . . . . . . . 2.76% 2.83% 2.78% 2.66%
==============================================
(1) Includes credit loss reserve of the Corporate Segment.
</TABLE>
The level of reserves for consumer credit losses is based on
delinquency and chargeoff experience by product, and judgmental
factors when there is not clear experience. The level of reserves
for commercial credit losses is based on a quarterly review process
for all commercial credits and management's evaluation of probable
future losses in the portfolio as a whole given its geographic and
industry diversification and historical loss experience. The
general credit loss reserve at the corporate level is maintained to
strengthen overall credit loss reserves and is based upon
management's evaluation of the receivable portfolio as a whole,
including the geographic concentrations of receivables and
unpredictability of ultimate potential exposure in individually
large receivables in the Finance and Banking and Liquidating
Commercial Lines segments. This reserve will be charged against
segment operations in the future as it is used to absorb credit
losses in those operations. Management also evaluates the potential
impact of existing and anticipated national and regional economic
conditions on the managed receivable portfolio when establishing
consumer, commercial and corporate credit loss reserves. While<PAGE>
<PAGE> 14
management allocates substantially all reserves among the company's
various products and segments, all reserves are considered to be
available to cover total loan losses. See Note 5, "Credit Loss
Reserves" in the accompanying financial statements for analyses of
reserves.
FINANCE AND BANKING
-------------------
Statements of Income
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
All dollar amounts are stated in millions. 1994 1993 1994 1993
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income. . . . . . . . . . . . . . . . . . . . . . $ 1,225.1 $ 1,223.6 $ 631.7 $ 619.2
Interest income from noninsurance investment securities . 60.7 67.9 29.0 36.1
Interest expense. . . . . . . . . . . . . . . . . . . . . 518.1 546.9 277.5 261.8
-----------------------------------------------
Net interest margin . . . . . . . . . . . . . . . . . . . 767.7 744.6 383.2 393.5
-----------------------------------------------
Securitization and servicing fee income . . . . . . . . . 337.1 191.5 166.1 94.4
Insurance premiums and contract revenues. . . . . . . . . 85.9 76.2 44.1 36.6
Investment income . . . . . . . . . . . . . . . . . . . . 11.7 10.8 6.0 6.0
Fee income. . . . . . . . . . . . . . . . . . . . . . . . 127.9 138.6 65.5 70.0
Other income. . . . . . . . . . . . . . . . . . . . . . . 35.0 67.8 18.4 29.7
-----------------------------------------------
Other revenues. . . . . . . . . . . . . . . . . . . . . . 597.6 484.9 300.1 236.7
-----------------------------------------------
Net interest margin and other revenues. . . . . . . . . . 1,365.3 1,229.5 683.3 630.2
-----------------------------------------------
Provision for credit losses on owned receivables. . . . . 296.8 318.9 146.7 159.4
-----------------------------------------------
Costs and expenses:
Operating expenses. . . . . . . . . . . . . . . . . . . 801.2 675.0 401.2 343.7
Policyholders' benefits . . . . . . . . . . . . . . . . 39.4 39.6 19.2 19.1
Income taxes. . . . . . . . . . . . . . . . . . . . . . 74.4 62.6 36.0 33.3
-----------------------------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 153.5 $ 133.4 $ 80.2 $ 74.7
===============================================
Average receivables:
Owned . . . . . . . . . . . . . . . . . . . . . . . . . $19,345.5 $19,175.9 $19,733.0 $19,468.8
Serviced with limited recourse. . . . . . . . . . . . . 9,673.2 7,854.5 9,652.4 8,044.7
-----------------------------------------------
Average receivables managed . . . . . . . . . . . . . . . 29,018.7 27,030.4 29,385.4 27,513.5
Serviced with no recourse . . . . . . . . . . . . . . . . 16,587.7 11,565.5 17,044.6 11,569.3
-----------------------------------------------
Average receivables owned or serviced . . . . . . . . . . $45,606.4 $38,595.9 $46,430.0 $39,082.8
===============================================
Return on average owned assets - annualized . . . . . . . 1.25% 1.09% 1.29% 1.24%
===============================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
June 30, December 31,
1994 1993
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
End-of-period receivables:
Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,645.9 $19,340.5
Serviced with limited recourse. . . . . . . . . . . . . . . . . 10,309.0 9,827.8
----------------------------------
Receivables managed . . . . . . . . . . . . . . . . . . . . . . . 29,954.9 29,168.3
Serviced with no recourse . . . . . . . . . . . . . . . . . . . . 17,239.4 15,229.4
----------------------------------
Receivables owned or serviced . . . . . . . . . . . . . . . . . . $47,194.3 $44,397.7
==================================
End-of-period deposits. . . . . . . . . . . . . . . . . . . . . . $ 7,510.9 $ 7,516.1
==================================
/TABLE
<PAGE>
<PAGE> 15
Overview
--------
Domestic Finance and Banking earnings for the second quarter and
first six months of 1994 increased to $77.3 and $148.3 million, up
from $74.3 and $137.5 million in the year-ago periods primarily due
to improved operating results in the bankcard, private-label credit
card and consumer finance businesses, partially offset by lower
year-over-year results in the mortgage banking operations as
discussed earlier. The company anticipates year-over-year earnings
improvements for the domestic consumer finance and credit card
operations for the remainder of 1994 absent unforeseen
circumstances. These increases are expected to be offset by lower
earnings in the mortgage banking business due to contraction in the
overall market for first mortgages and continued adherence to
established pricing policies on portfolio products.
The operating results of the foreign businesses in both the second
quarter and first six months were sharply improved compared to the
prior year periods. The company expects continued improvement in
its United Kingdom operation over the remainder of 1994 and
anticipates its Canadian business will be operating near a breakeven
level by the end of 1994.
Receivables
-----------
As mentioned previously, the level of the company's managed domestic
and foreign consumer portfolio grew during the second quarter. See
the Overview section of "Management's Discussion and Analysis" on
page 12 for further discussion.
Receivables owned totaled $19.6 billion at June 30, 1994, up from
both March 31, 1994 and December 31, 1993. The level of owned
receivables from quarter to quarter may vary depending on the timing
and significance of securitization transactions in a particular
period. In the second quarter of 1994, the company completed
securitizations and sales of approximately $1 billion of
receivables. For the first six months of the year, the company has
securitized and sold approximately $2 billion of receivables.
Since 1989, securitizations and sales of consumer receivables have
been an important source of liquidity for the company. The company
continues to service the securitized receivables after such
receivables are sold and retains a limited recourse obligation.
Securitizations impact the classification of revenues and expenses
in the income statement. Amounts related to receivables serviced,
including net interest margin, fee income, such as interchange fees,
and provision for credit losses on receivables serviced with limited
recourse are reported as a net amount in securitization and
servicing fee income in the company's statements of income.
The company monitors its Finance and Banking segment on a managed
basis as well as on the historical owned basis reflected in its
statements of income. The managed basis assumes that the
receivables securitized and sold are instead still held in the
portfolio. Pro forma statements of income on a managed basis for
the Finance and Banking segment for the second quarter and six
months ended June 30, 1994 and 1993 are presented on the following
page. For purposes of this analysis, the results do not reflect the
differences between the company's accounting policies for owned
receivables and receivables serviced with limited recourse.
Accordingly, net income on the pro forma managed basis equals net
income on a historical owned basis.<PAGE>
<PAGE> 16
PRO FORMA MANAGED FINANCE AND BANKING STATEMENTS OF INCOME
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
All dollar amounts are June 30, June 30,
stated in millions. 1994 1993 1994 1993
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Finance income . . . . . . . . $ 1,790.9 11.46%* $ 1,715.2 11.79%* $ 914.0 11.60%* $ 865.5 11.71%*
Interest income from
noninsurance investment
securities . . . . . . . . . 60.7 .39 67.9 .47 29.0 .37 36.1 .49
Interest expense . . . . . . . 742.0 4.75 740.0 5.09 396.0 5.03 359.8 4.87
----------------------------------------------------------------------------
Net interest margin. . . . . . 1,109.6 7.10 1,043.1 7.17 547.0 6.94 541.8 7.33
----------------------------------------------------------------------------
Servicing fee income . . . . . 34.5 .22 (2.2) (.02) 26.4 .34 (.4) (.01)
Insurance premiums and
contract revenues. . . . . . 85.9 .55 76.2 .52 44.1 .56 36.6 .50
Investment income. . . . . . . 11.7 .08 10.8 .08 6.0 .08 6.0 .08
Fee income . . . . . . . . . . 222.7 1.43 148.5 1.02 113.6 1.44 81.7 1.11
Other income . . . . . . . . . 35.0 .22 67.8 .47 18.4 .23 29.7 .40
----------------------------------------------------------------------------
Other revenues . . . . . . . . 389.8 2.50 301.1 2.07 208.5 2.65 153.6 2.08
----------------------------------------------------------------------------
Net interest margin and
other revenues . . . . . . . 1,499.4 9.60 1,344.2 9.24 755.5 9.59 695.4 9.41
----------------------------------------------------------------------------
Provision for credit losses. . 430.9 2.76 433.6 2.98 218.9 2.78 224.6 3.04
----------------------------------------------------------------------------
Costs and expenses:
Operating expenses . . . . . 801.2 5.13 675.0 4.64 401.2 5.09 343.7 4.65
Policyholders'
benefits . . . . . . . . . 39.4 .25 39.6 .27 19.2 .24 19.1 .26
Income taxes . . . . . . . . 74.4 .48 62.6 .43 36.0 .46 33.3 .45
----------------------------------------------------------------------------
Net income . . . . . . . . . . $ 153.5 .98% $ 133.4 .92% $ 80.2 1.02% $ 74.7 1.01%
============================================================================
Average receivables
managed. . . . . . . . . . . $29,018.7 $27,030.4 $29,385.4 $27,513.5
Average noninsurance
investments. . . . . . . . 2,219.5 2,054.4 2,134.7 2,054.6
----------------------------------------------------------------------------
Average managed interest-
earning assets . . . . . . . $31,238.2 $29,084.8 $31,520.1 $29,568.1
============================================================================
*As a percent, annualized, of average managed interest-earning assets.
</TABLE>
The discussion below on revenues, where applicable, includes
comparisons to amounts reported on the company's historical
statements of income ("Owned Basis") as well as on the above pro
forma statements of income ("Managed Basis").
Net interest margin
-------------------
Net interest margin on an Owned Basis was $383.2 and $767.7 million
for the second quarter and first six months of 1994, down from
$393.5 million in the 1993 second quarter but higher than $744.6
million for the six months ended June 30, 1993. The improvement in
year-to-date results was due to higher levels of interest-earning
assets and a shift in product mix towards higher yielding credit
card and other unsecured receivables with a reduction in lower
yielding first mortgages. The reduction in net interest margin in
the 1994 second quarter compared to 1993 was primarily due to
increased interest costs on variable rate liabilities, which
repriced more quickly than the company's variable rate receivables
in the rising interest rate environment. This increase was
partially offset by higher asset levels and changes in product mix
described above. Net interest margin in the second quarter on an
Owned Basis as a percent of average owned interest-earning assets,
annualized, was 7.01 percent compared with 7.23 percent in the prior
quarter and 7.31 percent in the second quarter of 1993.
<PAGE>
<PAGE> 17
Net interest margin on a Managed Basis increased to $547.0 and
$1,109.6 million for the second quarter and first six months of
1994, up from $541.8 and $1,043.1 million in the same year-ago
periods and, as a percent of average managed interest-earning
assets, annualized, was 6.94 percent compared to 7.27 percent in the
previous quarter and 7.33 percent the year-ago quarter.
Other revenues
--------------
Securitization and servicing fee income on an Owned Basis consists
of two components: income associated with the securitization and
sale of receivables and servicing fee income related to the
servicing of first mortgage loans with no recourse and unsecured
receivables. Securitization income on an Owned Basis, which
includes net interest income, interchange and other fee income, and
provision for credit losses related to receivables serviced with
limited recourse, increased compared to the same year-ago period due
to a higher level of securitized receivables outstanding. The
components of securitization income are reclassified to the
applicable line in the statements of income on a Managed Basis.
Servicing fee income increased over the second quarter and first six
months of 1993, consistent with the serviced receivable portfolio
growth. Average receivables serviced with no recourse increased to
$17.0 billion for the second quarter of 1994, up from $11.6 billion
in the same period in 1993. The portfolio of loans serviced with
no recourse continued to grow primarily due to originations and
sales of first mortgages to investors with servicing rights
retained. Additionally, in the third quarter of 1993, the company
began servicing an unsecured consumer loan portfolio totaling
$1.0 billion at June 30, 1994.
Insurance premiums and contract revenues increased from both the
second quarter and the first six months of 1993 due to higher sales
of domestic specialty and credit insurance.
Fee income on an Owned Basis includes revenues from fee-based
products such as bankcards, consumer banking deposits and private-
label credit cards, as well as commission income from the company's
brokerage business. Fee income was $65.5 and $127.9 million in the
second quarter and first six months of 1994, respectively, down from
$70.0 and $138.6 million in the comparable periods of the prior year
primarily due to lower interchange fees as a result of the
securitizations of GM Card receivables beginning in the second
quarter of 1993. Fee income on securitized receivables is
transferred to securitization income upon sale. The decrease was
partially offset by higher other fee income. Fee income on a
Managed Basis, which in addition to the items discussed above
includes interchange and other fees related to receivables serviced
with limited recourse, increased from $81.7 and $148.5 million in
the second quarter and first six months of 1993, respectively, to
$113.6 and $222.7 million in the same periods in 1994 primarily due
to GM Card receivable growth.
Provision for credit losses
---------------------------
The provision for credit losses for receivables on an Owned Basis
for the second quarter and first six months of 1994 totaled $146.7
and $296.8 million, down 8 and 7 percent, respectively, from $159.4
and $318.9 million in the comparable prior year periods. The level
of provision for credit losses on an Owned Basis may vary from
quarter to quarter, depending on the significance of securitizations
and sales of receivables in a particular period, as provision
related to the securitized receivables is transferred to
securitization and servicing fee income.
The provision for credit losses for receivables on a Managed Basis
totaled $218.9 and $430.9 million in the second quarter and first
six months of 1994, respectively, down slightly from $224.6 and
$433.6 million in the comparable periods of 1993. As a percent of
managed interest-earning assets, the provision decreased to 2.76
percent from 2.98 percent in the first six months of 1993,
reflecting the underlying improvement in the credit quality of the
managed portfolio, which experienced lower delinquency in the first
six months of 1994 than in the first six months of 1993. See the
following credit quality section for further discussion of factors
affecting the provision for credit losses.
<PAGE>
<PAGE> 18
Expenses
--------
Operating expenses, which the company defines as salaries and fringe
benefits plus other operating expenses, were $401.2 and $801.2
million in the second quarter and first six months of 1994,
respectively, up from $343.7 and $675.0 million in the same periods
of 1993 primarily due to increased costs associated with servicing
the larger owned or serviced receivables portfolio and with
marketing initiatives undertaken in 1994. Operating expenses as a
percent of average receivables owned or serviced, annualized,
decreased to 3.46 percent in the second quarter of 1994 compared to
3.57 percent in the first quarter of 1994 and 3.52 percent in the
second quarter of 1993.
The effective tax rate for the Finance and Banking segment was 31.0
and 32.6 percent, compared to 30.8 and 31.9 percent in the second
quarter and first six months of 1993.
Credit Quality
--------------
Overall credit quality statistics of the Finance and Banking
portfolio improved in the second quarter of 1994, as delinquency and
chargeoff levels declined from the prior quarter.
Delinquency
-----------
Delinquency levels are monitored for both receivables owned and
receivables managed. The company looks at delinquency levels which
include receivables serviced with limited recourse because this
portfolio is subjected to underwriting standards comparable to the
owned portfolio, is managed by operating personnel without regard to
portfolio ownership and results in a similar credit loss exposure
for the company.
<TABLE>
<CAPTION>
Two-Months-and-Over Contractual Delinquency (as a percent of managed consumer receivables):
-------------------------------------------------------------------------------------------------
6/30/94 3/31/94 12/31/93 9/30/93 6/30/93
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic:
First mortgage. . . . . . . . . . . . 1.68% 2.31% 1.42% 1.21% 1.15%
Home equity . . . . . . . . . . . . . 2.75 3.10 3.16 3.38 3.20
Other secured . . . . . . . . . . . . 2.64 1.62 1.38 1.83 3.20
Bankcard. . . . . . . . . . . . . . . 2.34 2.41 2.41 2.57 2.47
Merchant participation. . . . . . . . 4.53 5.02 5.01 5.43 5.73
Other unsecured . . . . . . . . . . . 6.01 6.48 6.63 7.23 7.46
----------------------------------------------------
Total domestic. . . . . . . . . . . . . 3.10 3.37 3.28 3.50 3.46
-----------------------------------------------------
Foreign:
Canada. . . . . . . . . . . . . . . . 3.83 4.14 4.65 5.11 5.61
United Kingdom. . . . . . . . . . . . 5.27 5.99 6.74 7.34 8.37
Australia . . . . . . . . . . . . . . 7.43 7.98 8.93 9.59 10.95
----------------------------------------------------
Total foreign . . . . . . . . . . . . . 4.78 5.25 5.82 6.32 7.06
----------------------------------------------------
Total . . . . . . . . . . . . . . . . . 3.32% 3.61% 3.58% 3.85% 3.93%
====================================================
</TABLE>
Delinquency as a percent of managed consumer receivables decreased
from both the prior quarter and prior year levels, representing a
$44.8 million decline in the amount of delinquent receivables since
March 31, 1994. The decline in delinquent receivables was driven by
improvements in the home equity, merchant participation and other
unsecured products and in all the foreign operations. These
improvements were primarily due to tighter underwriting standards
instituted in the early 1990's, resulting in a higher quality of
receivables underwritten. The United Kingdom ratio also benefited
from the issuance of the GM Card from Vauxhall there beginning in
early 1994, as new accounts were added to the receivables base but
made only a small contribution to delinquency. Excluding the impact
of the United Kingdom GM Card from Vauxhall portfolio, the United
Kingdom and total foreign delinquency ratios were 6.12 and 5.06
percent, respectively, down from 6.51 and 5.41 percent,
respectively, in the first quarter.
<PAGE>
<PAGE> 19
The level of delinquent receivables also continued to be impacted by
first mortgage receivables on which the company temporarily extended
payment terms in the first quarter of 1994 due to the January
California earthquake. The company continues to believe that its
ultimate exposure on the impacted first mortgage receivables is
small. First mortgage, total domestic and total delinquency
excluding the effect of these receivables were 1.17, 3.06 and 3.28
percent, respectively, in the second quarter of 1994 compared to
1.72, 3.32 and 3.56 percent, respectively, in the prior quarter.
The decrease from the March 1994 level was due to improvements in
the non-conforming first mortgage loan portfolio.
Bankcard delinquency improved slightly compared to both the prior
and year-ago quarters. Improvement in the non-GM Card portfolio
offset a slight increase in delinquent GM Card receivables resulting
from the aging of the GM Card portfolio. The GM Card program
continues to have a favorable impact on the bankcard delinquency
percent. The company expects GM Card delinquency to stabilize over
the remainder of the year, and also anticipates further improvement
in the non-GM Card portfolio.
The company believes that, although further reductions are possible,
the overall declining delinquency trend will begin to stabilize.
Future changes in delinquency will depend on economic conditions in
the various countries and regional areas where the company operates,
the composition of the managed receivables base, and the maturation
of the GM Card portfolio.
Nonperforming Assets
--------------------
<TABLE>
<CAPTION>
Nonperforming assets consisted of the following:
-------------------------------------------------------------------------------------------------
In millions. 6/30/94 3/31/94 12/31/93 9/30/93 6/30/93
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual managed receivables. . . . . $483.3 $517.6 $528.7 $ 565.4 $ 582.4
Accruing managed receivables 90 or more
days delinquent . . . . . . . . . . . 218.5 215.6 207.3 198.5 205.5
------------------------------------------------------
Total nonperforming managed receivables 701.8 733.2 736.0 763.9 787.9
------------------------------------------------------
Real estate owned . . . . . . . . . . . 161.4 165.7 168.9 193.1 199.2
Other assets acquired through
foreclosure . . . . . . . . . . . . . 79.8 81.3 82.9 84.4 85.9
------------------------------------------------------
Total nonperforming assets. . . . . . . $943.0 $980.2 $987.8 $1,041.4 $1,073.0
======================================================
Credit loss reserves for managed
receivables as a percent of
nonperforming managed receivables . . 94.6% 88.8% 87.9% 76.6% 71.1%
------------------------------------------------------
</TABLE>
Nonaccrual managed Finance and Banking receivables declined
primarily due to continued improvement in the domestic consumer
finance operation.
<PAGE>
<PAGE> 20
Net Chargeoffs of Consumer Receivables
--------------------------------------
<TABLE>
<CAPTION>
Net Chargeoffs of Consumer Receivables (as a percent, annualized, of average consumer receivables managed):
-------------------------------------------------------------------------------------------------
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
1994 1994 1993 1993 1993
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic:
First mortgage. . . . . . . . . . . . .28% .46% .21% .59% .40%
Home equity . . . . . . . . . . . . . 1.37 1.20 1.17 .87 .98
Other secured . . . . . . . . . . . . .15 .05 .64 3.11 3.51
Bankcard. . . . . . . . . . . . . . . 3.88 4.22 3.99 3.78 3.43
Merchant participation. . . . . . . . 3.83 3.91 4.26 4.44 4.02
Other unsecured . . . . . . . . . . . 5.10 5.26 5.41 5.99 6.62
---------------------------------------------------
Total domestic. . . . . . . . . . . . . 2.91 2.97 2.82 2.78 2.66
---------------------------------------------------
Foreign:
Canada. . . . . . . . . . . . . . . . 2.43 2.89 3.86 2.83 2.83
United Kingdom. . . . . . . . . . . . 2.48 2.96 4.07 4.62 5.55
Australia . . . . . . . . . . . . . . 3.72 2.74 3.77 2.61 3.38
---------------------------------------------------
Total foreign . . . . . . . . . . . . . 2.59 2.90 3.92 3.38 3.73
---------------------------------------------------
Total . . . . . . . . . . . . . . . . . 2.87% 2.96% 2.96% 2.86% 2.81%
===================================================
</TABLE>
Net chargeoffs as a percent of average managed receivables for the
1994 second quarter decreased compared to the first quarter but were
slightly higher than the year-ago quarter. Net chargeoffs on a
dollar basis in the second quarter were $205.1 million, compared to
$206.5 million in the first quarter of 1994. Improvements in the
non-GM Card bankcard portfolio and in the foreign operations in the
second quarter were partially offset by increased chargeoffs in the
home equity portfolio. Home equity loan chargeoffs continue to be
impacted by weak economic conditions in the western region. The
improvement in the other portfolios was due to the favorable
performance of recently underwritten receivables. The foreign
chargeoff ratio also benefited from growth in the GM Card from
Vauxhall, which was introduced in the United Kingdom in early 1994
and which have experienced no chargeoffs to date. Excluding the
impact of GM Card from Vauxhall receivables originated in the United
Kingdom, United Kingdom and total foreign chargeoffs were 2.81 and
2.71 percent, respectively, for the 1994 second quarter, compared to
3.05 and 2.92 percent, respectively, in the first quarter.
Chargeoffs are a lagging indicator of credit quality and generally
reflect prior delinquency trends. However, growth associated with
the domestic GM Card portfolio has resulted in a shift in product
mix toward bankcard receivables, which have higher chargeoff rates
than secured receivables. GM Card chargeoffs during the quarter
remained better than management's expectations, and the company
expects that chargeoff ratios associated with the GM Card will begin
to stabilize. The company also anticipates further improvement in
other domestic products and the foreign operations. However, future
changes in chargeoff trends may be impacted by factors such as the
continued shift in product mix toward bankcard receivables, economic
conditions, and the impact of personal bankruptcies. Consequently,
the extent and timing of improvements in the chargeoff trend remains
uncertain.
<PAGE>
<PAGE> 21
INDIVIDUAL LIFE INSURANCE
-------------------------
Individual Life Insurance net income was $10.6 and $22.3 million, up
from $9.8 and $21.5 million in the prior year periods.
<TABLE>
<CAPTION>
Statements of Income
--------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
All dollar amounts are stated in millions. 1994 1993 1994 1993
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income . . . . . . . . . . . . . $247.6 $263.1 $114.9 $129.6
Contract revenues . . . . . . . . . . . . . 74.1 61.2 35.3 29.7
-----------------------------------------
Total revenues. . . . . . . . . . . . . . . 321.7 324.3 150.2 159.3
Costs and expenses:
Policyholders' benefits . . . . . . . . . 219.8 226.3 109.9 114.2
Operating expenses. . . . . . . . . . . . 67.2 65.1 23.9 30.1
Income taxes. . . . . . . . . . . . . . . 12.4 11.4 5.8 5.2
-----------------------------------------
Net income. . . . . . . . . . . . . . . . . $ 22.3 $ 21.5 $ 10.6 $ 9.8
=========================================
Return on average assets - annualized . . . .65% .71% .60% .64%
=========================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
June 30, December 31,
1994 1993
--------------------------------------------------------------------------------------
<S> <C> <C>
Investment securities . . . . . . . . . . . . . $ 6,426.6 $ 6,358.0
Life insurance in-force . . . . . . . . . . . . 34,918.0 32,371.6
=================================
</TABLE>
Investment securities for the Individual Life Insurance segment
totaled $6.4 billion, flat with both the March 31, 1994 and December
31, 1993 levels. The Individual Life Insurance portfolio
represented approximately 74 percent of the company's total
investment portfolio at June 30, 1994. Higher-risk securities,
which include non-investment grade bonds, common and preferred
stocks, commercial mortgage loans and real estate, represented 6.9
percent of the insurance investment portfolio at June 30, 1994,
compared to 7.1 percent at March 31, 1994 and 7.0 percent at
December 31, 1993.
At June 30, 1994 the market value for the insurance held-to-maturity
investment portfolio was 102 percent of the carrying value compared
to 104 percent at March 31, 1994 and 108 percent at December 31,
1993. The decrease in market value over book value during the first
half of 1994 was mainly the result of the rising interest rate
environment. The company continuously monitors the fair value of
its available-for-sale investment portfolio in light of market
interest rate conditions and sells securities at pre-established
levels to maximize its capital position.
Investment income in the second quarter and first six months of 1994
was $114.9 and $247.6 million, down compared with the year-ago
periods as higher levels of investment securities were offset by
lower yields. Contract revenues in both periods increased due to
higher levels of insurance in-force.
Policyholders' benefits in the second quarter and first half of 1994
were $109.9 and $219.8 million, down 4 and 3 percent over the same
periods in 1993 due to lower interest credited to policyholders
caused by lower yields on investment securities.
Despite higher commission expense, operating expense in the second
quarter was down compared to the year-ago period due to lower levels
of deferred insurance policy acquisition cost amortization ("DAC")
associated with lower investment income. Operating expense for the
first six months was up slightly compared to the prior year period
due to higher commission expense and higher levels of DAC resulting
from increased gross profits from universal life and annuity
contracts. <PAGE>
<PAGE> 22
The effective tax rate was 35.4 and 35.7 percent for the second
quarter and first half of 1994, respectively, compared to 34.7
percent in both respective periods of 1993.
LIQUIDATING COMMERCIAL LINES
----------------------------
The net loss for the Liquidating Commercial Lines segment was $2.5
and $5.5 million in the second quarter and first six months of 1994
compared to a net loss of $4.0 and $8.2 million in the same periods
in 1993.
<TABLE>
<CAPTION>
Statements of Operations
--------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
In millions. 1994 1993 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest margin . . . . . . . . . . . . . . . . $ 19.0 $ 23.0 $ 8.3 $ 11.0
Other revenues. . . . . . . . . . . . . . . . . . . 12.7 2.8 .9 2.9
-------------------------------------------------
Net interest margin and other revenues. . . . . . . 31.7 25.8 9.2 13.9
Provision for credit losses . . . . . . . . . . . . 32.1 28.1 8.1 13.8
Operating expenses. . . . . . . . . . . . . . . . . 6.3 9.6 3.8 5.7
Income tax benefit. . . . . . . . . . . . . . . . . (1.2) (3.7) (.2) (1.6)
-------------------------------------------------
Net loss. . . . . . . . . . . . . . . . . . . . . . $ (5.5) $ (8.2) $ (2.5) $ (4.0)
=================================================
Average receivables owned . . . . . . . . . . . . . $1,105.2 $1,511.8 $1,053.1 $1,476.0
=================================================
</TABLE>
Net interest margin for the second quarter and first six months of
1994 decreased compared to the prior year periods as the effect of
lower asset levels was only partially offset by wider spreads.
Increased other revenues in 1994 primarily related to the company's
25 percent equity investment in a liquidating commercial joint
venture made in June 1993. Provision for credit losses was $8.1 and
$32.1 million, down from $13.8 million in the second quarter and up
from $28.1 million in the first six months of 1993. See page 13 in
Management's Discussion and Analysis on Consolidated Credit Loss
Reserves for factors impacting overall loss reserve levels.
Operating expenses were $3.8 and $6.3 million in the second quarter
and first six months of 1994, respectively, down from $5.7 and $9.6
million in the year-ago periods principally due to lower write-downs
and net expenses for real estate owned.
<TABLE>
<CAPTION>
Commercial Nonperforming Loans and Real Estate Owned:
-------------------------------------------------------------------------------------------------
In millions. 6/30/94 3/31/94 12/31/93 9/30/93 6/30/93
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate nonaccrual. . . . . . . . . $ 47.7 $ 49.3 $ 54.8 $ 79.6 $ 90.6
Other nonaccrual. . . . . . . . . . . . 114.8 151.1 173.9 164.1 246.9
------------------------------------------------------
Total nonaccrual. . . . . . . . . . . . 162.5 200.4 228.7 243.7 337.5
Renegotiated. . . . . . . . . . . . . . 28.5 29.2 28.7 17.3 34.9
------------------------------------------------------
Total nonperforming loans . . . . . . . 191.0 229.6 257.4 261.0 372.4
Real estate owned . . . . . . . . . . . 244.2 249.7 256.6 262.2 258.1
------------------------------------------------------
Total . . . . . . . . . . . . . . . . . $435.2 $479.3 $514.0 $523.2 $630.5
======================================================
Credit loss reserves as a percent of
nonperforming loans . . . . . . . . . 86.4% 74.4% 67.2% 71.2% 50.7%
------------------------------------------------------
</TABLE>
The company expects the longer term downward trend in nonperforming
loans to continue, although it may stabilize in the near future
before decreasing. In addition, comparisons between periods may be
impacted by individual transactions which mask the overall trend.
The company continues to estimate its ultimate loss exposure on
nonperforming loans based on performance and specific reviews of
individual loans and its outlook for economic conditions. Because
the portfolio consists of a number of loans with relatively large<PAGE>
<PAGE> 23
balances, changes in individual borrower circumstances which
currently are unforeseen have the potential to change the estimate
of ultimate loss exposure in the future.
Management believes that commercial real estate markets began to
stabilize in the second half of 1993. The level of future potential
write-downs will depend heavily on changes in overall market
conditions as well as circumstances surrounding individual
properties. To preserve value in liquidating the real estate owned
portfolio over time, the company has segregated its portfolio into
two categories. Properties in weak markets or with poor cash flow
will be divested in an expeditious, orderly fashion. These
properties, which have been written down an average of 50 percent,
represented 17 percent of the commercial real estate owned portfolio
at June 30, 1994. The average carrying value of a property in this
portfolio at June 30, 1994 was approximately $3 million. Properties
with positive and/or improved cash flows and in markets which, the
company believes, have potential for improvement are being held for
sale at prices which reflect this value. Revenues on all commercial
real estate properties, net of write-downs and carrying costs, were
$.8 million in the second quarter of 1994 compared to net write-
downs and carrying costs of $2.8 million in the same period in 1993.
Corporate
---------
Corporate expenses, net of tax benefits, for the second quarter and
first six months of 1994 were $3.8 and $8.2 million, below the $10.9
and $16.5 million in the comparable prior year periods due to a $10
million unallocated provision for credit losses made in the second
quarter of 1993.
<PAGE>
<PAGE> 24
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
The Annual Meeting of Stockholders of Household International
was held on Wednesday, May 11, 1994 for the purpose of (1)
electing directors, (2) approving the Household International
Key Executive Bonus Plan, and (3) ratifying the appointment of
Arthur Andersen & Co. as the independent auditors for
Household. The voting results were as follows:
- Each of the following persons received the number of votes
set out after his or her name and were elected directors to
hold office for the ensuing year and until their successors
shall be elected and shall qualify:
FOR WITHHELD
---------- --------
D. C. Clark 83,754,182 315,487
R. J. Darnall 83,752,043 317,626
G. G. Dillon 83,711,611 358,058
M. J. Evans 83,742,125 327,544
C. F. Freidheim, Jr. 83,753,374 316,295
L. E. Levy 83,753,222 316,447
J. D. Nichols 83,755,052 314,617
G. P. Osler 83,690,170 379,499
A. E. Rasmussen 83,675,661 394,008
L. W. Sullivan, M.D. 83,735,540 334,129
R. C. Tower 83,738,548 331,121
- Proposal to approve the Household International Key
Executive Bonus Plan:
FOR AGAINST ABSTAIN BROKER NON-VOTE
---------- ---------- ------- ---------------
68,149,201 15,124,501 795,967 0
- Ratification of the appointment of Arthur Andersen & Co. as
the corporation's auditors for the year 1994:
FOR AGAINST ABSTAIN BROKER NON-VOTE
---------- ---------- ------- ---------------
82,161,539 1,720,858 187,272 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statement of Computation of Ratio of Earnings to Fixed
Charges and to Combined Fixed Charges and Preferred
Stock Dividends.
21 List of Household International subsidiaries.
(b) Reports on Form 8-K
During the second quarter of 1994, the Registrant filed a
Current Report on Form 8-K dated May 11, 1994 reporting
pursuant to Item 5, "Other Events" the appointment of David A.
Schoenholz as Senior Vice President - Chief Financial Officer
of Household International, Inc., and a Current Report on Form
8-K dated June 28, 1994 reporting pursuant to Item 5, "Other
Events" that Household Bank, f.s.b., a wholly owned subsidiary
of Household International, Inc., entered into a Branch
Purchase Agreement with First Madison Bank, FSB, whereby
Household Bank agreed to acquire from First Madison 26 branch
offices located in the metropolitan Chicago area.<PAGE>
<PAGE> 25
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOUSEHOLD INTERNATIONAL, INC.
-----------------------------
(Registrant)
Date: August 12, 1994 By: /s/ David A. Schoenholz
--------------- ----------------------------
David A. Schoenholz,
Senior Vice President -
Chief Financial Officer
and on behalf of
Household International, Inc.
<PAGE>
<PAGE> 26
Exhibit Index
-------------
12 Statement of Computation of Ratio of Earnings to Fixed
Charges and to Combined Fixed Charges and Preferred Stock
Dividends.
21 List of Household International subsidiaries.
U:\WPP\EMP819\EDGAR\I10Q630.AS1
EXHIBIT 12
HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
- -----------------------------------------------------------------
All dollar amounts are stated in millions.
Six Months Ended June 30 1994 1993
- -----------------------------------------------------------------
Net income $162.1 $130.2
- -----------------------------------------------------------------
Income taxes 82.3 62.4
- -----------------------------------------------------------------
Fixed charges:
Interest expense (1) 555.1 601.2
Interest portion of rentals (2) 17.5 16.6
- -----------------------------------------------------------------
Total fixed charges 572.6 617.8
- -----------------------------------------------------------------
Total earnings as defined $817.0 $810.4
- -----------------------------------------------------------------
Ratio of earnings to fixed charges 1.43 1.31
=================================================================
Preferred stock dividends (3) $ 21.9 $ 23.7
=================================================================
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.37 1.26
=================================================================
(1) For financial statement purposes, interest expense includes
income earned on temporary investment of excess funds,
generally resulting from over-subscriptions of commercial
paper.
(2) Represents one-third of rentals, which approximates the
portion representing interest.
(3) Preferred stock dividends are grossed up to their pretax
equivalent based upon an effective tax rate of 33.7 and
32.4 percent for June 30, 1994 and 1993, respectively.
C:\WP51\BACK\IEX12.AS1
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF HOUSEHOLD INTERNATIONAL, INC.
- ---------------------------------------------
As of June 30, 1994 the following subsidiaries were directly or
indirectly owned by the Registrant. Certain subsidiaries which
in the aggregate do not constitute significant subsidiaries may
be omitted.
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Hamilton Investments, Inc. Delaware 100%
Alpha Source Asset Management, Inc. Delaware 100%
Craig-Hallum Corporation Delaware 100%
Craig-Hallum, Inc. Minnesota 100%
ProValue Investments, Inc. Delaware 100%
Household Bank, f.s.b U.S. 100%
Household Affinity Funding Corporation Delaware 100%
Household Bank (SB), N.A. U.S. 100%
Household Home Title Services, Inc. California 100%
Household Investment Services, Inc. California 100%
Household Insurance Services, Inc. Illinois 100%
Housekey Financial Corporation California 100%
Associations Service Corporation Indiana 100%
Household Mortgage Services, Inc. Delaware 100%
Security Investment Corporation Maryland 100%
Household Credit Services, Inc. Delaware 100%
Household Finance Corporation Delaware 100%
HFC Funding Corporation Delaware 100%
HFC Revolving Corporation Delaware 100%
HFS Funding Corporation Delaware 100%
Household Bank (Nevada), N.A. U.S. 100%
Household Card Services, Inc. Nevada 100%
Household Bank (Illinois), N.A. U.S. 100%
Household Credit Services of Mexico, Inc. Delaware 100%
Household Finance Receivables Corporation IIDelaware 100%
Household Financial Services, Inc. Delaware 100%
Household Group, Inc. Delaware 100%
Alexander Hamilton Life Insurance Company Michigan 100%
of America
Alexander Hamilton Capital Management, Michigan 100%
Inc.
Alexander Hamilton Insurance Agency, Inc. Michigan 100%
Alexander Hamilton Life Insurance Co. Arizona 100%
of Arizona
<PAGE>
<PAGE> 2
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
First Alexander Hamilton Life New York 100%
Insurance Co.
Hamilton National Life Insurance Company Michigan 100%
Alexander Hamilton Insurance Company Michigan 100%
of America
Cal-Pacific Services, Inc. California 100%
Household Business Services, Inc. Delaware 100%
Household Capital Markets, Inc. Delaware 100%
Household Commercial Financial Delaware 100%
Services, Inc.
Business Realty Inc. Delaware 100%
Business Lakeview, Inc. Delaware 100%
Capital Graphics, Inc. Delaware 100%
Color Prelude Inc. Delaware 100%
HCFS Business Equipment Corporation Delaware 100%
HFC Commercial Realty, Inc. Delaware 100%
Center Realty, Inc. Delaware 100%
Com Realty, Inc. Delaware 100%
G.C. Center, Inc. Delaware 100%
Land of Lincoln Builders, Inc. Illinois 100%
HFC Leasing, Inc. Delaware 100%
First HFC Leasing Corporation Delaware 100%
Second HFC Leasing Corporation Delaware 100%
Valley Properties Corporation Tennessee 100%
Fifth HFC Leasing Corporation Delaware 100%
Sixth HFC Leasing Corporation Delaware 100%
Seventh HFC Leasing Corporation Delaware 100%
Eighth HFC Leasing Corporation Delaware 100%
Tenth HFC Leasing Corporation Delaware 100%
Eleventh HFC Leasing Corporation Delaware 100%
Thirteenth HFC Leasing Corporation Delaware 100%
Fourteenth HFC Leasing Corporation Delaware 100%
Seventeenth HFC Leasing Corporation Delaware 100%
Nineteenth HFC Leasing Corporation Delaware 100%
Twenty-second HFC Leasing Corporation Delaware 100%
Twenty-sixth HFC Leasing Corporation Delaware 100%
Beaver Valley, Inc. Delaware 100%
Hull 752 Corporation Delaware 100%
Hull 753 Corporation Delaware 100%
Third HFC Leasing Corporation Delaware 100%
Macray Corporation California 100%
Fourth HFC Leasing Corporation Delaware 100%
Pargen Corporation California 100%
Fifteenth HFC Leasing Corporation Delaware 100%
Hull Fifty Corporation Delaware 100%<PAGE>
<PAGE> 3
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Household Capital Investment Corporation Delaware 100%
B&K Corporation Michigan 94%
Household Commercial of California, Inc. California 100%
Amstelveen FSC Ltd. Bermuda 99%
Night Watch FSC Ltd. Bermuda 100%
Overseas Leasing Two FSC, Ltd. Bermuda 99%
Overseas Leasing Four FSC, Ltd. Bermuda 99%
Overseas Leasing Five FSC, Ltd. Bermuda 99%
Omni Products International, Inc. Rhode Island 100%
OPI, Inc. Virginia 100%
The Generra Company Delaware 80%
Household Finance Consumer Discount Company Pennsylvania 100%
Household Finance Corporation II Delaware 100%
Household Finance Corporation of Alabama Alabama 100%
Household Finance Corporation of California Delaware 100%
Household Finance Corporation of Nevada Delaware 100%
Household Finance Realty Corporation of Delaware 100%
New York
Household Finance Industrial Loan Company Iowa 100%
of Iowa
Household Finance Realty Corporation of Delaware 100%
Nevada
Household Finance Corporation III Delaware 100%
Household Realty Corporation Delaware 100%
Overseas Leasing One FSC, Ltd. Bermuda 100%
Household Retail Services, Inc. Delaware 100%
HRSI Funding, Inc. Nevada 100%
Household Financial Center Inc. Tennessee 100%
Household Group Australia, Inc. Delaware 100%
HFC of Australia, Ltd. Victoria 100%
Household Financial Services, Ltd. NewSouthWales 100%
BFC Finance Limited Victoria 100%
Eastrock Finance Corporation Pty. Ltd. Victoria 100%
Heritage General Insurance Limited NewSouthWales 100%
Heritage Life Insurance Ltd. NewSouthWales 100%
HFC Leasing Ltd. NewSouthWales 100%
Household Building Society Tasmania 100%
Inter City Lease Management Pty. Ltd. NewSouthWales 100%
HFC Australia Deposits Pty Limited NewSouthWales 100%
Household Industrial Finance Company Minnesota 100%
Household Industrial Loan Co. of Kentucky Kentucky 100%
Household Insurance Agency, Inc. Nevada 100%
Household Recovery Services Corporation Delaware 100%
Household Relocation Management, Inc. Illinois 100%
Mortgage One Corporation Delaware 100%<PAGE>
<PAGE> 4
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Mortgage Two Corporation Delaware 100%
Sixty-First HFC Leasing Corporation Delaware 100%
Household Bank (California), N.A. U.S. 100%
Household Receivables Funding Corporation Nevada 100%
Household Receivables Funding Delaware 100%
Corporation II
Household Receivables Funding, Inc. Delaware 100%
Household Financial Group, Ltd. Delaware 100%
Household Global Funding, Inc. Delaware 78%
Household International (U.K.) Limited England 100%
D.L.R.S. Limited Cheshire 100%
HFC Bank plc U.K. 100%
Hamilton Life Assurance Co. Limited U.K. 100%
Hamilton Insurance Company Limited U.K. 100%
Hamilton Financial Planning Services U.K. 100%
Limited
HFC Pension Plan Limited England 100%
Household Funding Limited U.K. 100%
Household Investments Limited England/Wales 100%
Household Leasing Limited England 100%
Household Management Corporation Limited England/Wales 100%
Household Overseas Limited England 100%
Household International Netherlands, B.V. Netherlands 100%
Household Financial Corporation Limited Ontario 100%
Auto League of North America Limited Canada 100%
HFC of Canada Canada 100%
Household Realty Corporation Limited Ontario 100%
Household Trust Company Canada 100%
Merchant Retail Services Limited Ontario 100%
Household Mexico, Inc. Delaware 100%
Household de Mexico S.A. de C.V. Mexico 99%
Household Reinsurance Ltd. Bermuda 100%
Land of Lincoln Real Estate, Ltd. Illinois 100%
U:\WP\EMP819\EDGAR\IEX21.WP1
